This past week, CNBC published an article which suggested that "There is an acute crisis headed towards us" within the multifamily real estate sector. According to the article the upper-end of the luxury market is crowded and prone to market fluctuations or flattening. In reality, apartment builders in the largest 150 US cities built 395,775 new housing units in the last year, which is a 46% increase Y-o-Y. Of the new homes, around 75-80% of them are considered luxury communities. ,Visit this link.

When I lived in Boston over the past few years, I've witnessed numerous major developments being constructed at a breakneck speed. It's not surprising that the vast majority of these homes are luxurious luxury residences that the average person cannot afford. In actuality, the Spotlight Team at the Boston Globe recently released a set of articles that focused on growth of the "Seaport" neighborhood. The article pointed out the absence of affordable housing, as well as an overabundance of luxury housing that do not meet the needs of the diverse population in the city.

Are these multifamily developments danger to the multifamily industry? If the market is flat it could be a problem for Class A new construction. However, the existing Class B & C multifamily communities can withstand market corrections and imbalances. Let's examine the reasons for such an increase in luxury and what could happen if demand subsides.

The demand for luxury goods is strong

There are two key drivers behind the increasing demand for luxury homes. Generation Y and baby boomers who are empty-nesters are flocking to city centers such as Boston, Austin & Denver with a desire for luxury finishes and luxurious properties. This growth can be attributed to the reality that empty-nesters and double-income millennial households are opting to rent instead than buy. Perks such as high-end fitness centers, concierge services, and full-service pet spas are becoming the standard. With each new building it appears that there is an amenities arms race. These types of modern amenities are being included in developers' projects rapidly however, it's not cheap.

The cost of construction can be expensive.

The main reason that the majority of new developments that are on the market are expensive. This is due to the increasing cost of construction work. The demand for construction labor is at an all-time high and the price of building materials is at their highest ever been. Toby Bozzuto is the CEO of the Bozzuto Group. He says, "The two-by four doesn't care if it's in luxury buildings or affordable buildings." It costs the same." Due to the high cost of cost of labor and materials, and the rising value of the natural resources developers are obliged to build luxurious products due to the fact that the numbers do not make sense to construct any other type of construction. Cities are having to enact laws that force developers to create an amount of affordable units in their construction projects. The average number of units as well as the location will determine how much they charge. But, on their own, these rules do not guarantee a significant growth in affordable housing.

What alternatives are there for affordable housing? Visit.

Through the years, there have been building booms and busts. There are many apartment buildings built between 1970 and 1990 in various cities across the country. While they may seem out-of-date compared to the current construction, the "bones” are still good. These buildings constructed in the frame were constructed using contemporary materials and techniques, and typically only need surface rehabbing with the replacement of wear and tear items. These communities, as well as the secondary markets they serve are well placed to counteract the overflow of luxury apartments. They also provide affordable housing. The benefit of these Class B homes is that they typically are able to perform well across all economic climates. When the economy is thriving, Class C tenants move up into Class B homes. If the economy is in decline and Class A tenants are unable to not afford the high rents and typically move down to Class B properties. These properties are often offered for less than the price of construction. This permits investors to provide the perfect property to live in and still maintain attractive rents that tenants with different income levels can afford.
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